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HMRC internal manual

Capital Allowances Manual

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HM Revenue & Customs
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MEA: Qualifying expenditure: Exploration and access

Expenditure that falls within this category is defined in CAA01/S396 (1)(a)(b) as that spent in ‘searching for or discovering and testing the mineral deposits of any source or winning access to any such deposits’.

The costs of gaining access to a deep mine via a shaft are capital, until the target mineral is reached, and fall within mineral exploration and access. Once the target mineral is reached the costs of extracting it are generally revenue.

For an open cast mine, before the deposit can be worked, the operator must win access to the minerals by removing any soil overburden and making the ‘first cut’ through any layers of rock to reach the target minerals. These costs are part of the capital costs of exploration and access. Subsequent cuts are regarded as revenue and part of working the mineral - see BIM62031. Land acquired simply to provide road access to the mineral bearing deposit does not qualify.

Expenditure by a person on the construction of works in connection with the working of a source of mineral deposits is allowable, as long as they are likely to be of little or no value to the person working the source immediately before the source ceases to be worked (CAA01/S414).

‘Works’ is not defined, but can include railway lines, roads and jetties at the site of mineral extraction.

No IBA can be given on expenditure which is qualifying expenditure under the MEA code.

Note that qualifying expenditure on exploration and access incurred in connection with a trade of mineral extraction, whether before or after the trade begins, is treated as incurred for the purposes of the trade, (CAA01/S400 (2)).